The well-known American chain of discount variety stores that sells items for $1 or less, Dollar Tree, Inc. (NASDAQ: DLTR) shows signs of an upcoming price surge according to its latest charts.
#1 Symmetrical Triangle Pattern Breakout: As you can see from the daily chart, the stock had recently formed a symmetrical triangle pattern. This pattern is shown as purple color lines. This pattern represents a period of consolidation before the price breaks out and is typically formed when there is indecision in the price movements and uncertainty among the buyers and sellers.
Once a breakout from the upper line occurs, it usually signifies the start of a new bullish trend. Currently, the stock has broken out of the symmetrical triangle pattern, indicating possible bullishness.
#2 MACD above Signal Line: As you can see from the daily chart, the MACD line (blue color) is currently above the signal line (orange color), indicating a bullish bias. The stock is also trading above a gap support (marked as a pink dotted line), which acts as a good support level.
[hana-code-insert name=’adsense-article’ /]#3 Above MAs: The stock is currently trading above both 50-day and 200-day SMA, indicating that the bulls are currently in control.
#4 Bullish RSI: The RSI is currently above 50.
This indicates the strength of the current upmove and that the stock may move higher in the short-term.
#5 %K above %D: The %K line of the stochastic is currently above the %D line, indicating bullishness.
#6 Fibonacci Level Support: Usually, after an up-move, stocks retraces to any of the key Fibonacci levels before surging back again.
DLTR had taken support at the 23.6% Fibonacci support level of the upmove, as seen from the weekly chart. This looks like a good area for bounce-back. The stock had also broken out of a short-term downtrend. This downtrend line is marked in purple color.
#7 %K above %D in Stochastics: The stochastics oscillator shows that the %K (blue) line is currently above the %D (orange) line. This indicates possible bullishness.
#8 MACD above Signal Line: The weekly chart also shows thar the MACD line (blue color) is currently above the signal line (orange color), indicating a bullish bias.
Recommended Trade (Based on the Charts)
Buy Price: If you want to get in on this trade, you can purchase shares of DLTR at the current price of $90.32.
TP: Our target prices are $100 and $115 in the next 4-6 months.
SL: To limit risk, place a stop loss at $84.70. Note that this stop loss is on a closing basis.
Our target potential upside is almost 11% to 27% in the next 4-6 months. For a risk of $5.62, our target rewards are $9.68 and $24.68. This is an almost 1:2 and 1:4 risk-reward trade.
In other words, this trade offers nearly 2x to 4x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down with high volume from the symmetrical triangle pattern. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any regulatory changes in the sector.
Tara[hana-code-insert name=’MMPress 2′ /]